The latest Obamacare case hinges on two justices: John Roberts and Anthony Kennedy

After last week’s oral arguments in the latest Obamacare Supreme Court case, we have a pretty good idea how most of the justices will rule. The court’s more liberal justices– Ginsburg, Kagan, Breyer, and Sotomayor– will almost certainly uphold the subsidies, and we’re pretty confident that three of the conservatives– Alito, Scalia, and Thomas– will rule against them.

However, as for Roberts and Kennedy– the deciding votes– it’s anyone’s guess. Still, their comments during the oral arguments can at least give us a sense of what they’re thinking about. Surprisingly they seem to be considering constitutional questions that even the plaintiffs didn’t bring up– and one of these questions could be a bigger threat to the law than anyone seems to realize.

What this case is about

The Affordable Care Act says that if a state chooses not to run its own insurance exchange the federal government will run it for them. There are three key sections of the law here: Section 1311 lays out the rules states have to follow in setting up their own exchanges; Section 1321 allows the federal government to step in if a state chooses not to; and finally there’s Section 1401, which has the rules for who can get federal subsidies to help pay for coverage.

The problem is that in defining who’s eligible for subsidies, Section 1401 refers just to people enrolled “through an Exchange established by the State under section 1311”– there’s no mention of federally-run exchanges.

The IRS has said even though Section 1401 doesn’t specifically mention the federally-run exchanges, Congress obviously meant for subsidies to be available everywhere (the subsidies technically come in the form of a tax credit, which is why the IRS is involved). The plaintiffs in the lawsuit claim that Congress specified “established by the State” to prevent federal exchanges from getting subsidies in order to coerce states into setting up their own exchanges. The IRS, they say, is acting illegally and without Congressional approval by providing these subsidies– thus the lawsuit. [For a more thorough explanation, check out our earlier post on the case.]

To make a decision on the case, the Supreme Court will have to rule on at least one, and possibly three, legal questions.

Question 1: Did Congress intend to provide subsidies on the federal exchange?

The first question the court will look at is simply about the text of the law: did Congress intend to provide subsidies to states who use the federal exchange?

If the answer is yes, then the case is settled and the subsidies stand. The court wouldn’t consider issues raised by other possible answers, thanks to a longstanding legal doctrine called “constitutional avoidance,” which says that courts should only rule on constitutional questions if they have to.

As we explained in an earlier post, there’s a pretty strong case that Congress clearly intended to provide subsidies on both federal and state exchanges, for several reasons:

There are other places in the ACA where it says “established by the state” when it obviously means federal exchanges. For example, an University of Michigan law professor Nicholas Bagley points out, “the ACA limits who can buy insurance on an exchange to those who “reside in the State that established the Exchange.” If [the plaintiffs] are correct that Congress scrupulously distinguished between state-established exchanges and exchanges in general, then no one in a state with a federally established exchange could go on that exchange to buy a health plan.” Congress clearly didn’t provide a federal exchange for no reason.

There’s absolutely no evidence in the legislative history that Congress intended to limit subsidies to only state-run exchanges. As one Congressional staffer who worked on the bill told Vox: “The clear intent of the tax credits is to make insurance more affordable, especially when you’re mandating its purchase. It’s crazy to think of a mandate without subsidies. It just doesn’t make any sense.”

If Congress intended to coerce states into creating their own exchanges by withholding subsidies, they would have made it more clear. Here’s Bagley again: “Threats must be communicated. When Vito Corleone made the proverbial offer that can’t be refused, he didn’t just say ‘sign the contract.’ He had Luca Brasi hold a gun to the head of a guy and assured him that either his brains or his signature would be on the contract. Without the gun, there’s no threat. In the ACA, however, the threat that Congress supposedly meant to level was so well-hidden that the states never noticed it.”

Roberts, who was mostly quiet during the hearing, said nothing addressing the issue of Congress’s intent. Kennedy did jump into a discussion about why the text specifies “established by the State,” telling the government’s lawyer “That seems to me to go in the wrong direction for your case.”

If a majority of the justices decide either (1) that it’s not clear whether Congress intended to provide subsidies on the federal exchange, or (2) that Congress definitely didn’t intend to provide them, that doesn’t necessarily mean they’ll strike down subsidies on the federal exchange. First they’ll have to answer one of the following questions.

In a 1984 case, Chevron v. Natural Resources Defense Council, the Supreme Court ruled that if Congress’s intent is unclear, the agency implementing the provision gets to decide what Congress meant. Applying the Chevron doctrine to this case, the courts would simply accept the IRS’s interpretation that yes, Congress did intend for subsidies to be available on the federal exchange.

However, both Kennedy and Roberts might be considering using this case to limit the Chevron doctrine.

In one of his few substantive comments during the hearing, Roberts said, “If you’re right — if you’re right about Chevron, that would indicate that a subsequent administration could change that interpretation?” Jeffrey Toobin of The New Yorker thinks Roberts is tipping his hand here, giving himself a way to uphold the subsidies while keeping his conservative credentials by pointing out that whoever wins the White House in 2016 could undo them. But as David Savage of the L.A. Times points out:

“Roberts is no fan of the Chevron rule. Two years ago, in a dissent he wrote in a case involving the Federal Communication Commission, he said he had a “fundamental” disagreement with giving regulators the benefit of the doubt in all cases.

The “vast and varied federal bureaucracy” churns out “reams of regulations [that] touch almost every aspect of daily life,” he said. “And more are on the way,” he added, pointing at the Affordable Care Act.

According to the Chief Justice, given the vast power wielded by the administrative state, the courts must be vigilant to ensure that the executive department is not employing lawmaking authority that it was never granted. Thus, the courts should police the boundaries, ensuring that Congress in fact intended to delegate interpretive authority to an agency over a particular ambiguity. After all, “‘[i]t is emphatically the province and duty of the judicial department to say what the law is.’”

Similarly, in last week’s oral arguments, Kennedy also seemed to indicate that he’s considering limiting the extent of the Chevron rule:

Well, if it’s– ­­ if it’s ambiguous, then we think about Chevron. But it seems to me a drastic step for us to say that the Department of Internal Revenue and its director can make this call one way or the other when there are, what, billions of dollars of subsidies involved here? Hundreds of millions?

And it– ­­ it seems to me our cases say that if the Internal Revenue Service is going to allow deductions using these, that it has to be very, very clear.

If the court believes that Congress’s intent is unclear, but that the IRS shouldn’t be the ones interpreting what Congress meant, then the court would step in to decide whether Congress intended to provide these subsidies. If the court says yes, then just as we said above, the subsidies stand. If it says no, then it raises another constitutional question…

Question 3 (if Congress did not intend to provide subsidies on the federal exchange): Is that unconstitutional?

During the hearing, Kennedy wondered whether, if Congress meant to withhold subsidies on the federal exchange, the consequences of states not building their own exchanges would be so severe that it would amount to unconstitutional coercion from the government:

Let me say that from the standpoint of the dynamics of Federalism, it does seem to me that there is something very powerful to the point that if your argument is accepted, the States are being told either create your own Exchange, or we’ll send your insurance market into a death spiral. We’ll have people pay mandated taxes which will not get any credit on– ­­ on the subsidies. The cost of insurance will be sky­high, but this is not coercion. It seems to me that under your argument, perhaps you will prevail in the plain words of the statute, there’s a serious constitutional problem if we adopt your argument.

Now, again under the doctrine of constitutional avoidance, if an interpretation (that Congress did intend to withhold subsidies) would be unconstitutional (i.e., the consequences of withholding subsidies are too coercive), the Court should interpret the statute in a different way– one that is constitutional. In other words the subsidies would stand.

The wrench here is a point that Scalia brings up:

“Do we have any case which says that when there is a clear provision, if it is unconstitutional, we can rewrite it?”

In other words, assuming the coercion is unconstitutional, if the court thinks it’s unclear whether Congress intended to provide subsidies, then, as we said above, it has to interpret the ACA in a way that is constitutional, and the subsidies stand. However, if the court believes that Congress clearly didn’t intend to provide subsidies, then there could be a huge problem. In that case, says Scalia, deciding that the federal exchanges do get subsidies wouldn’t be interpreting the law, it would be rewriting it, which would be unprecedented. What the court normally does in cases where a provision is clearly unconstitutional is strike that provision altogether, or– if it can’t be separated from other provisions– striking the entire law.

Despite the fact that Kennedy is raising a point that could blow up the whole Affordable Care Act, supporters of Obamacare believe it’s a good sign that he mentioned it. In the lower courts, only extremely conservative judges have ruled that Congress definitely intended to withhold subsidies, and Kennedy has a reputation for being a more moderate swing vote.

However, on Obamacare we’re not so sure about Kennedy. In the first Obamacare case before the court, not only did he rule that the individual mandate and Medicaid expansion were unconstitutional, he also joined the conservatives in saying that the entire law should be struck down over those provisions– an extremely partisan opinion that even the conservative Justice Roberts disagreed with.

Our prediction

We’d say that there’s a good chance that the subsidies will be upheld– even if Kennedy and the conservatives are looking for an excuse to take down the ACA, we don’t think Roberts would side with them. As Huffington Post’s Jonathan Cohn has pointed out, “Roberts has spoken frequently about the need to show that the court is above partisan politics. That’s probably why he voted to save the law last time.” A ruling against Obamacare in this new case would have even less actual legal basis– and more dire consequences– than in 2012.

Still, the small chance that conservatives on the court could use this case to strike down the entire law should have Obamacare supporters nervous.